A lawyer asked us recently to explain how Indiana Medicaid treats prenuptial agreements. The lawyer’s question referred to our blog comments on the subject in the April 2017 article titled: “Getting Married? Get a Prenuptial Agreement First!” We figured that our explanation of the matter may be good information for the blog, so we are circling back to the topic. This article begins a 2-part explanation of how Indiana Medicaid deals with a remarried couple’s assets when one spouse requires nursing home care if the couple made a prenuptial agreement before they married.

How Medicaid Deals with Prenuptial Agreements – First: Medicaid Basics for Married Couples

Most experienced elder law attorneys understand how Medicaid treats prenuptial agreements. Lawyers that do not practice elder law sometimes hire us as advisors to guide them when their clients required nursing home care. Our explanation to the lawyer that asked about our prenuptial agreement blog article began with an explanation of how Medicaid treats married couples.

Couples’ Two Medicaid Steps

Medicaid has special rules for helping a married person pay for nursing home care. Medicaid’s spousal impoverishment rules refer to the ill or injured spouse as the “institutional spouse,” and refer to the spouse living outside of the nursing home as the “community spouse.” The rules require the state Medicaid system to measure the total value of the couple’s money and other assets in 2 steps. This measurement of the couple’s wealth includes most assets that the couple owns jointly and separately.

Snapshot Date and Snapshot Value

In the first step, Medicaid measures the couple’s asset
values that existed on the 1st day of the institutional spouse’s
unbroken 30-day stay in one or more health care facilities. For example, the
institutional spouse may go to the hospital after a stroke, and then transfer
to a nursing home or rehab facility. If the institutional spouse goes directly
from the hospital to the nursing home, the time spent in each facility counts
toward the 30 days. Medicaid refers to this first asset management date as the
“snapshot date,” and to the couple’s asset value as the “snapshot value.”

Assets Exempted from Snapshot Value

Medicaid exempts some assets from the snapshot value. For
example, Medicaid disregards real estate owned by the community spouse, one
vehicle, and the community spouse’s IRA accounts. Medicaid counts all other
assets, including joint accounts, life insurance policies, and the
institutional spouse’s IRA accounts. The remaining assets are counted as the
couple’s “resources.”

Resource Allowances

The Medicaid eligibility targets differ for the community
spouse and institutional spouse because each spouse has a different “resource
allowance.” The institutional spouse only has a $2,000 resource allowance, but
the community spouse’s resource allowance may be much larger. The community
spouse can keep the exempt assets that we previously mentioned in this article.
The community spouse’s resource allowance also includes up to 50% of the couple’s
resources, but not more than a maximum value ($126,420 in 2019). The federal
government provides the same kind of cost-of-living increase for the community
spouse’s resource value that the government provides for Social Security cost-of-living
adjustments.

Spend Down

After Medicaid determines the snapshot value, the couple
begins what some people call the “spend down.” The spend down is a process for
the couple to reduce their combined resource value until the institutional
spouse qualifies for Medicaid.

Resource Allowance and Spend Down Example

This simple example shows how the process works: Bill (the
institutional spouse) and Sue (the community spouse) have a house, a $20,000
car, a $20,000 truck, $50,000 in the checking account, Sue’s $50,000 IRA, and
Bill’s $100,000 IRA. The house, one car, and Sue’s IRA are exempt, but the
truck, the checking account funds, and Bill’s IRA are part of the $170,000
snapshot value. Bill can keep $2,000 and Sue can keep $85,000 (50% of
$170,000), but they must reduce the snapshot value by $83,000 ($170,000 –
$85,000 – $2,000 = $83,000). Once they reduce the asset value to $83,000, Bill
should qualify for Medicaid.

Next Month: Bill’s Medicaid Eligibility and the Prenuptial Agreement

We will explain the rest of the Medicaid eligibility process for Bill and Sue next month. The explanation will also explain how Medicaid treats prenuptial agreements like the one that Bill and Sue made before their marriage.